Thursday, October 15, 2009


Tons of data today (mostly bad) and the market is down a measly 30 bips. Maybe if we close below 10,000 today and go back above it tomorrow we can have another party??? Yesterday of course officially shot my top call for August or September. The world has become much more loony than I ever thought it would become.

So first the good data. The NY Empire Manufacturing Index blew out numbers and recorded a reading of 34.6. Highest since 2004. This only indicates direction not overall level so we are not back to 2004 levels. But than the Philadelphia Fed manufacturing index came in at 11.5 which was below last months reading of 14 and below the forecasted at 13.5

Jobless claims came in at 514k which was an improvement of 10k but they revised last week number lower by 3k. This is hardly good, in fact it is still really bad, but it is less bad so maybe can pass as good.

That is about all the "good" news I can come up with.

On to the bad news.

Capital One's charge offs rocket higher. Charge off rate was 9.77%, much higher than the 9.32% from last month. 30+ day delinquent rate was up to 5.38% from 5.09% last month. That is meaningful credit deterioration.

Speaking of credit deterioration, foreclosure filings were up 5% in the third quarter from the second quarter. 1 in every 136 U.S. housing units received some sort of foreclosure filing. Mind boggling number. Banks are down 1.5% but that is nothing considering they were up 3.5% yesterday. Up, up, and away.

To JP Morgan's earnings yesterday which had the market rocking, well some things just never make sense. JP Morgan had great earnings individually but what the numbers said about the banking sector is just horrid. Credit got worse in the quarter (charge-offs, non-performers, delinquencies) and the outlook for credit (mortgage -- especially prime, credit cards and corporate) has worsened for the next few quarters. Yet it was hailed as a great report. Three months ago they indicated some improvement in early state delinquencies. That got all the bulls into a fervor. That obviously disappeared. Market ignores the reverse side.

To Goldman Sachs. Well you had big gains in fixed income. Surprise surprise but misses on everything else.

The one that was most confusing for me yesterday was railroad CSX. Revenue was a huge miss. Earnings big drop and the stock was up 7% after being up 150% in the last six months. Looking at rail volumes things appear to be improving very slowly if at all. It is incredible.

One more thing from Goldman. Trading profits were $10 billion. This used to be in the $3 billion range. This is all backed by the U.S. and taxpayers. Things go bust and we will have to bail them out. Yet management keeps around 50% of the profit for bonuses.

Risk appetite is back with a fury!! Someday we will all pay a serious price for this.

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